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DAILY US OPENING NEWS - 23/08/10

 

  • Weekend discussions between PM Kan and BOJ Governor yielded little in affirmative action

 

  • Moody’s said that slower economic growth in Europe might spark sovereign downgrades

 

  • SNB’s Hildebrand said the central bank may need to intervene if CHF strength continues

 

  • Uncertainty over government formation in Australia is fanning AUD volatility

 

 

Overnight News

 

ASIA

 

Longer-dated JGBs slipped overnight as dealers sold to make room for a 20-year debt sale later in the week, while lead JGB futures edged up as Tokyo’s Nikkei lost ground. Nikkei inched to a nine-month closing low (-0.7%), dented by selling from what some market players said was hedge funds and foreigners as worry lingered about the pace of economic recovery and the impact of the strong JPY. (RTRS)

 

In other news, Japanese PM Kan and BOJ Governor Shirakawa discussed the JPY and agreed to work closely in a phone conversation, but Kan did not ask the central bank to make any monetary policy changes, and the talks did not touch on currency intervention, according to chief cabinet secretary Sengoku. However, Japanese finance minister Noda said that he has not heard anything about a meeting between Kan and Shirakawa. Noda said he didn't discuss specific stimulus measures with Kan, adding that it is important to continue close contact with BOJ. He also said that Kan will consider meeting BOJ governor Shirakawa when needed. (RTRS/Sources)

 

US

 

IMF’s former chief economist Raghuram Rajan said that the Federal Reserve should consider raising rates, even as almost 10% of the US workforce remains unemployed. He added that near zero rates risk fanning asset bubbles or propping up inefficient companies. (Sources)

 

Bonds

 

EUROPEAN GOVERNMENT BONDS

 

Bund futures traded in negative territory in the early European session due to the strength in equities. There was muted reaction to weaker than expected manufacturing PMI from Germany and Eurozone. However, prices came off their worst levels and ventured into positive territory after Moody’s said that slower economic growth in Europe might spark downgrades to credit ratings for countries on the continent, as any slowdown could weaken the ability of individual countries to absorb additional shocks to the system. The rating agency said that the fiscal and economic adjustments necessary to stabilise government debt ratios are likely to be difficult and painful. (Sources) Incoming supply from Belgium, which was met with decent demand and lower yields, also weighed upon Bunds in early trade. Moving into the North American open, prices are trading sideways in negative territory.

 

·   German Manufacturing PMI (Aug A) M/M 58.2 vs. Exp. 60.5 (Prev. 61.2)

·   German Services PMI (Aug A) M/M 58.5 vs. Exp. 56.3 (Prev. 56.5)

·   French Manufacturing PMI (Aug P) M/M 54.7 vs. Exp. 53.4 (Prev. 53.9), 2-month high

·   French Services PMI (Aug P) M/M 59.9 vs. Exp. 60.5 (Prev. 61.1), 4-month low

·   Eurozone Manufacturing PMI (Aug A) M/M 55.0 vs. Exp. 56.2 (Prev. 56.7)

·   Eurozone Services PMI (Aug A) M/M 55.6 vs. Exp. 55.5 (Prev. 55.8)

·   Eurozone Composite PMI (Aug A) M/M 56.1 vs. Exp. 56.4 (Prev. 56.7) (RTRS)

 

 

Maturity

2

5

10

30

Bund (Sep 10)

Level

0.610

1.299

2.290

2.901

132.69

Change (bps)

0.208

1.135

2.271

1.050

-0.2

 

GILTS

 

NYSE LIFFE Gilt futures traded in minor negative territory in early European trade, however moved into positive territory following Telegraph articles which were downbeat on the housing market and on how accurate the UK’s national debt data has been. Moving into the North American open, prices are trading sideways near unchanged.

 

In other news, the Institute of Economic Affairs (NASDAQ:IEA) has calculated that the national debt is GBP 4.8trln once state and public sector pension liabilities are included, or GBP 78,000 for every person in the UK. The IEA raised its concerns after the latest public finances data from the Office for National Statistics (NASDAQ:ONS) this week, which showed that the total debt, excluding bank bail-outs, is GBP 816bln – itself a record high. However, the figures strip out the state's pension liabilities in a contravention of standard accounting practices. (Telegraph)

Maturity

2.000

5.000

10.000

30.000

Gilt (Sep10)

Level

0.632

1.688

2.973

4.044

125.12

Change (bps)

0.671

0.527

0.022

2.832

0.03

 

EQUITIES

 

European bourses traded in positive territory for most of the European session, despite worse than expected manufacturing PMI from Germany and Eurozone as well as downbeat comments from Moody’s on Eurozone sovereign ratings. Basic materials performed well throughout the European session as weakness in the USD index buoyed commodities. Various M&A related stories have also aided sentiment with SABMiller looking to make a GBP 7bln bid for the beer-making unit of the Fosters Group, Dana Petroleum are pushing for a raised bid from KNOC after its hostile approach last week, and Potash the fertiliser company has rejected BHP Billiton's hostile takeover offer and the WSJ has speculated that the Canadian company has had interest from Asian third parties. Moving into the North American open, equities are trading higher with financials and basic materials as the best performing sectors.

 

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

6035.36

3562.67

5238.22

2668.09

6234.19

Change (ticks)

30.20

36.55

42.94

24.11

48.37

 

FX

 

EUR came under pressure following worse than expected German and Eurozone manufacturing PMI figures, with further pressure coming from downbeat comments from Moody’s on European sovereign ratings. Allied to this, EUR/USD traded lower following market talk of a US bank selling in the pair, however any losses have been contained by an option expiry seen at 1.2700.

 

In other news, SNB’s chief Hildebrand warned against hiking rates too soon and said that risks to the bank’s latest economic growth forecast had become more acute. Hildebrand said, “We were standing before the decision: Either we let the CHF rise strongly, and then Switzerland would have to carry the costs in the form of a deflationary spiral and an unemployment rate of possibly over 8%, or we take aggressive action.” (TagesAnzeiger) EUR/CHF traded lower in early European trade as stops were triggered to the downside, with the pair touching fresh session low at 1.3108.

 

Elsewhere, the AUD traded lower across the board in early European trade following concerns over a hung parliament scenario in Australia, however as session progressed the currency pared back most of the earlier losses. Tony Abbott’s Liberal-National coalition is leading Prime Minister Julia Gillard’s Labour party by 72 seats to 71, 4 short of a majority, meaning that Independent candidates are becoming likely ‘kingmakers’. Australia is likely to remain in political limbo for at least another week as the vote count drags on, however Prime Minister Gillard has said that caretaker provisions were ensuring stable and effective government. (RTRS/Sources)

 

Currency

EURUSD

GBPUSD

USDJPY

Level

1.2700

1.5555

85.33

Change (pips)

-0.0012

0.0021

-0.2900

 

COMMMODITIES

 

WTI Crude futures have traded with little real direction, and as we head into the North American open, they trade in minor positive territory.

 

Oil & Gas News:

  • The flow of oil through the 500,000 BPD pipeline from Iraq's Kirkuk oilfields to the Turkish port of Ceyhan was halted on Saturday morning and repairs could last up to 72 hours. "We do not so far know the cause, whether it was a technical glitch or sabotage," one source at Iraq’s North Oil company said.
  • China increased LNG purchases in July by 6.5% to 711,716 metric tons, meanwhile China has launched a national shale gas research centre to support the country's development of the unconventional fuel.

 

Geopolitical News:

  • Iran unveiled its first domestically built drone on Sunday in a ceremony to mark national defence day, and said it would begin production on Monday of two high-speed vessels, one capable of launching missiles and torpedoes.
  • Iran’s Deputy Oil Minister has said that Turkey and Iran may jointly build an urea and an ammonia unit in the industrial hub of Assaluyeh in southern Iran.
  • North Korea is willing to resume 6-party talks on dismantling its nuclear program, according to a senior Chinese diplomat.

 

Commodity

WTI Nymex

OTC Spot Gold

Level

73.46

1226.6

Change (NYSEARCA:USD)

-0.97

-1.20

 

 

LOOKING AHEAD

 

Economic Releases

CDT BST                                                        EXP.  PREV.

0730

1330

US    Chicago Fed Nat. Activity Index M/M (Jul)

 

-0.63

0900

1500

EU    Eurozone Consumer Confid. M/M (Aug A)

-14

-14

N/A

N/A

US    Mortgage Delinquencies Q/Q (Q2)

 

10.06%

N/A

N/A

US    MBA Mortgage Foreclosures Q/Q (Q2)

 

4.63%

N/A

N/A

CN    Leading Index M/M (Jul)

 

102.84

 

Speaker

 CDT    BST                                                  

0930

1530

US    Fed's Hoenig

 

Auction

  CDT    BST                                                  

1200

1800

US    USD 7bln (Act) 30y TIPS Auction

 

 

**Notes:

Long Gilt Sep. options expiry

 

Prices taken at 1205BST



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